This pattern suggests the bear market is not over

Key points:

• The S&P 500 has declined for 5 consecutive trading sessions
• At the same time, the 200-day moving average for the S&P 500 has fallen for 57 straight days
• Similar conditions preceded negative returns for stocks across short and medium-term time frames
• When I isolate instances that occurred when the index was above a low, the returns look even worse 

This price pattern suggests the S&P 500 could be heading for a lower low

Let's conduct a study to assess the outlook for the S&P 500 when the index declines for 5 consecutive trading sessions and the slope of the 200-day moving average has fallen for 57 straight days or longer. I screened out repeats by requiring 1 month to pass before a new signal could trigger.

For only the 5th time in more than two decades and the 29th time since 1928, the slope of the 200-day moving average has fallen for 57 consecutive days. While the current downtrend is well-established, the slope count remains low relative to other bear market periods.

Similar price patterns preceded negative returns

This study generated a signal 67 other times over the past 92 years. After the others, S&P 500 returns, win rates, and z-scores were unfavorable across short and medium-term time frames. The signal had a negative return at some point in the first 3 months in 57 out of 66 instances.

What happens when the signal occurs, and the S&P 500 is not at a low

Let's add some context to the study. I will keep the original study parameters but now require that the S&P 500 does not close at a 21-day low at the time of a signal, which is the case now. This study generated a signal 32 other times over the past 91 years. After the others, S&P 500 returns, win rates, and z-scores were unfavorable across short and medium-term time frames, especially the 2-month window. The signal had a negative return at some point in the first 3 months in 31 out of 32 instances. So, the odds suggest the bear market is not over.

What the research tells us...

When the S&P 500 declines for 5 consecutive trading sessions and the slope of the 200-day moving average has fallen for 57 days or longer, we need to remember that the trend is not our friend. Similar setups to what we're seeing now have preceded falling stock prices across short and medium-term time frames. If the S&P 500 trades above a 21-day low when a signal occurs, performance looks even worse, and the odds suggest the bear market may not be over.